At the Money: Gold, Bitcoin & Other Thematic Investments

It seems that every year a different investment theme bubbles to the surface. This year it's artificial intelligence. Last year it was the metaverse. Before that, it was fracking in oil, gold, bitcoin. Work your way back through history. Every now and again, a different idea catches investors intention because of the performance of the underlying stocks. I'm Barry Ridolts, and on today's edition of At the Money, we're going to discuss how to engage with thematic investing to help us unpack all

I would say, it's really a specialized part of the market.

Right.

It could be a group of stocks, it could be a group of it could be a country, it could be an industry, a very very focused part of the market.

So let me give you a great example of thematic investing. Back in nineteen sixty eight, your dad began one of the very first gold funds in the United States. Right before that nineteen seventies boom, tell us a little bit about gold as a thematic investment.

Yeah, I mean, listen, we call ourselves macro investors because we like to look outside of the context of the financial markets, look at politics, economics, and technology and say, okay, what's the opportunity that's going to come along that might not be priced in or the risk. So, yes, the emblematic thing for our firm was the starting of a gold fund. Even though gold had been fixed against the dollar for the entirety of US history.

You were guaranteed until the decoupling that your return was going to be exactly.

Zero, exactly zero, right, no upside.

So your father obviously was anticipating Nixon eventually going off the gold standard and severing that fixed rate.

For gold, just like maybe spending today. Back then, spending on social programs, the war, the Vietnam War.

You had the War on Poverty, the Great Program under Johnson, and then Vietnam spending was pretty substantial.

Yeah, exactly.

And so the idea is, all, right, what's again a multi year theme?

Right?

It's think its very hard to pick quarter to quarter, right, that is in there if you look at the bigger world, but it's not priced into the financial markets, and you said, listen, in history, gold has been the hedge, it's been the way to play inflation. So if I'm right, and it's you never know what the future is, but you picked your scenarios and.

That's the way to go.

And the beauty of that, you know that it's hard to forget. But in the seventies, gold shares gold companies went up like bitcoin does today because the costs of production.

Didn't go up in the seventies.

For oil, metals and gold, so that was and those stocks were like options.

So the theme in the seventies was the decoupling, going off the gold standard and all the sexcess spending for gold. What is the theme in the twenty twenties for gold.

Well, I think it's a question of the route are we returned to irresponsible government policies. And there's also another overlay barry, which is it was really big for the United States to seize Russian reserves after their invasion of Ukraine, because what you the reaction has been other countries are worried that the United States does the same thing, so they've been buying gold in their foreign cent banks at a rate that you really haven't seen for decades, So this is I.

Know China has been a huge buyer of gold recently.

It's across the table.

Is China anticipating the US seizing their assets? That would be an active war.

Yeah, but I mean if they invade Taiwan? Gotcha?

So, I mean they've stopped buying government bonds and they've been increased.

They haven't been.

Sort of the biggest buyers, but who hasn't you know? You have countries. India has been the consistent buyer. A lot of central banks, like Eastern European banks. So it's a little bit of a mishmash. But the point is, you know your question, is gold sort of something that you want to have as a thematic investment today?

I would say absolutely yes.

Because of the US government spending at seven percent of GDP. If we inflate our way out of it, right, if we buy all that debt right, then people are not going to like the dollar and gold's going to go up.

Got it?

You mentioned bitcoin. Let's talk about cryptocurrencies and DeFi as a theme. With bitcoin at fifty sixty thousand dollars, how much upside is in bitcoin and what other aspects of crypto are or are not appealing.

Let's focus on bitcoin. Like I said before, there's two technology trends of our lifetime, right, the Internet and AI. Internet finally came up with an asset. Right, it didn't have an asset. It didn't have its own gold. So I just look at bitcoin as its own gold. For the Internet gold, it's Internet gold. A question is is something else going to leap frog Bitcoin's popularity. I mean,

There are literally thousands of other coins. To quote business Week rhymes with bitcoins. Of all the rest of the coins out there, are the only one that seemed to have had any real staying power as ethereum. How do you look at ether relative to Bitcoin? Is that a one two? Are those the two winners or what else should we be thinking about in the crypto space?

Yeah, I mean I separate bitcoin as I said, the rest of this stuff is software investing. H I think it's you know, mystifying to call it, and all this other stuff it's software. And then the question is is any of this software, which is open source so you and I could copy it instantly, does any of it have any value? Are people paying to use this software? If you ask that question, there's only about thirty to

That it's a solution in search of a problem. But the upside is if a problem is identified that that crypto solves, it's potentially a multi trillion dollar sector of the economy.

And have two things.

Number one, last year was super important because the costs of using blockchains became predictable, Like you know how the bitcoin that became more and less expensive gas fees on a theory, that's like.

The worst thing. That's like filling up your car.

It costs fifty dollars a week and then you have to pay six hundred dollars, Like, I'm never going to use that. No real business is going to use that. Right, that was fixed in twenty twenty three, So you could either use.

It the last coin being mined or something else.

It's either Salona or an avalanche, which are fixed in terms of very low fees, or what they call layer two is don't worry about the technology. But the point is this database software solution now became price predictable. And the second point I would make to investors that may be skeptical, there's something called stable coins, which right these are tokens attract the value of the dollar, the velocity of trading of stable coins last year was ten trillion dollars, the same as the Visa network.

Wow, now that's a curiosity. But I asked you to think, what if that goes up five x? Right?

What if people constantly now on your phone start using stable coins as opposed to dollars. It's potential, it does. It may not matter to most people, but I'm just saying if you follow that space, that is a reasonable scenario for twenty four and twenty five.

And I know a number of people have said, why are you paying fees to master Cardavisa? This will eventually and my answer is because if it gets stolen, they cover me for everything over fifty bucks. I don't have to worry about my password being hacked to my bitcoin. So there's still some growing pains on the crypto side, but eventually disintermediating the big banks and the big financial players, that's the potential upside for crypto and DeFi.

One hundred percent a multi year thematic, if you will, kind of development.

So to sum up, look to add themes that are complementary to your core portfolio. You can consider AI or India or gold or even bitcoin as an add on to your long term investment. I'm Barry Rudolts. You've been listening to Bloomberg's At the Money